RESEARCH ON GROWTH OPPORTUNITY AND LIQUIDITY MONITORING BY MATHEMATICAL OPTIMIZATION

Xiani Yang¹, Yaqin Lu², Cunzhi Tian¹

¹Economic Research Center, Kunming University of Science and Technology, 650093, Kunming, Yunnan, China

²Economic Research Institute, Yunnan University of Finance and Economics, 650221, Kunming, Yunnan, China

Based on the assumption of variable-investment, this paper introduces growth opportunity into the model of liquidity needs (Tirole, 2006). Through the establishment of mathematical optimization model, we analyse the influence of growth opportunities on liquidity needs and liquidity investment decisions. Both of mathematical derivation and numerical simulation show that, the entrepreneur tends to overinvest in illiquid assets if the growth opportunity is small; otherwise, he will overhoard of liquid assets. In addition, the agency costs due to information asymmetry may also affect the entrepreneur's decisions of liquid assets investment.